Educational Articles

Coverage Initiation: Smith & Wesson Holding Corp.

Kenneth J. DeFranco, Jr.
| February 04, 2013

Value Line has initiated coverage of Smith & Wesson Holding Corporation (SWHC) in its flagship product, The Value Line Investment Survey. It is one of the world’s leading manufacturers of firearms. The company manufactures a wide array of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearms-related products, as well as accessories. SWHC’s primary customers include gun enthusiasts, collectors, hunters, sportsmen, individuals desiring home and personal protection, law-enforcement, and military agencies in the United States and around the globe. Smith & Wesson currently sells its products under the following brand names: Smith & Wesson, M&P, Thompson/Center, and Walther.

The company’s wholly-owned subsidiary, Smith & Wesson Corp., was founded in 1852 by Horace Smith and Daniel B. Wesson. Mr. Wesson purchased Mr. Smith’s interest in 1873. Much later, in 1965, the Wesson family sold Smith & Wesson Corp. to Conglomerate Bangor Punta Corp. Then, Lear Siegler Corporation purchased Bangor Punta in 1984, thereby acquiring ownership of Smith & Wesson Corp. After a flurry of purchase activity, Forstmann Little & Co. bought Lear Siegler in 1986 and sold Smith & Wesson Corp. shortly thereafter to Tomkins Corporation, an affiliate of U.K.-based Tomkins PLC. The present business was acquired from Tomkins in May 2001. Its name was changed to Smith & Wesson Holding Corporation in February 2002.

The weapons manufacturer has had a strategic relationship with Carl Walther GmbH since April 1998. It holds the production rights for the popular Walther PPK and PPK/S pistols (James Bonds’ weapon of choice) in the United States, which SWHC manufactures at its Houlton, Maine facility. Moreover, the gun maker’s brand name is widely recognized by hunting enthusiasts, holding a leading position in the black powder segment of the long-gun market. A host of fresh shooting platforms ought to bolster results ahead. Smith & Wesson has invested considerable capital in a range of new handguns, modern sporting rifles, as well as advanced bolt-action rifles. These weapons will highlight SWHC’s latest improvements in capability, accuracy, and comfort via the utilization of titanium solutions.

Meanwhile, the firearms industry is dominated by a small number of well-known companies. It encounters competition from both domestic and foreign manufacturers. Some competitors produce a vast array of firearms, while the majority of its peers build only certain types of guns. Primary competitors are Sturm Ruger (RGR) and Taurus in the revolver market and Beretta, Glock, Heckler & Koch, Ruger, Sig Sauer, and Springfield Armory in the pistol market. Furthermore, the company competes chiefly with Bushmaster, Rock River, Stag Arms, and DPMS in the modern sporting rifle market; and Browning, Marlin, Remington, Ruger, Savage, Weatherby, CVA, Traditions, and Winchester in the hunting rifle market. In addition, Peerless Handcuff Company is the only major handcuff manufacturer with significant market share in the United States that directly competes with Smith & Wesson. As a result of competitive foreign pricing, it sells nearly 95% of its handcuffs and restraints domestically.

Long-term prospects appear bright for Smith & Wesson Holding Corp. Solid operating leverage, good market share, a bevy of new products, and easing capacity constraints all ought to bolster performance. However, the possibility of stricter laws that would make it more difficult to purchase firearms is now an increasing concern adding to the potential risks of owning this stock.

Subscribers interested in this firearms manufacturer are advised to consult Value Line’s quarterly reports for Smith & Wesson Holding Corporation, as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.